Global climate change is threatening the future of cocoa beans. Although cocoa beans can withstand high temperatures, it requires humid conditions. Temperature increases coupled with an unchanged projection in rainfall will lead to dryer climate will lead to decreasing crop yield. Cocoa beans grow in a few concentrated regions – 70% of the world’s cocoa beans originate in Côte D’Ivoire and Ghana.[i] By 2050, rising temperature will render 89.5% of those regions less suitable to grow cocoa beans, and farms will need to move to higher altitude to adjust. [ii] Declines in cocoa production can occur as soon as 2030, driving cocoa bean prices upward.[iii]
The Hershey Company (NYSE: HYS), a US producer of chocolates and other confectionery, has been well aware of the threat of decreasing cocoa bean supply as the younger generation of farmers switch from planting cocoa beans to less labor-intensive and more profitable crops.[iv] Realizing that climate change will further exacerbate this trend, Hershey has already implemented changes in its supply chain.
Raising the (Chocolate) Bar for Responsible and Sustainable Sourcing
In 2012, in response to campaigns of activist groups for ethical sourcing practices, Hershey announced a commitment to source 100% of its cocoa from certified sustainable sources by 2020.[v] To achieve this goal faster, the company launched the Learn to Grow program, a three-year training program which teaches family farmers in updated methods to cultivate cocoa beans in hotter drier climate to increase productivity. Once those farms meet certification standards, Hershey purchases the certified sustainable cocoa beans at a premium, increasing the revenue each farm generates.[vi] Thus far, the company is a year ahead of schedule as it is expected to source 50% from certified sustainable sources in 2016. Hershey has also partnered with local governments (especially the Ghanaian government) to launch CocoaLink, which uses cheap mobile phones as a platform to share the latest farming technology and best practices through free SMS text messages.[vii] In addition to its partnership with government, the company founded CocoaAction with the World Cocoa Foundation to coordinate additional programs to help cocoa farmers in West Africa.[viii]
A Farmer Uses CocoaLink to Receive Farming Technology Updates
Good, but Not Good Enough
The programs Hershey implemented are a good start to adapting to the changing climate; the company will need additional levers to stay competitive in the confectionery industry.
- Hire a meteorologist: climate change will not only increase global temperatures in the long term, but also increase weather variability in the short term. A meteorologist can predict weather patterns in the short term and plan for more drastic changes in weather that may lower yield. Mars, a major competitor, has recently hired a meteorologist to help make sourcing decisions.[ix]
- Diversify geographies where cocoa beans are sourced: to de-risk the impact of variable weather, Hershey should source cocoa beans from SE Asia and Latin America in addition to West Africa.
- Show importance of sustainable chocolate to the consumer: Hershey should increase awareness of sustainable cocoa sourcing and use it as a competitive advantage. An example could be to launch a limited edition earth-shaped chocolates once Hershey reaches the 100% certified sustainable cocoa bean target.
The Dark Side of Chocolate?
Although Hershey’s efforts toward certified sustainable sourcing are laudable, they may not result in any positive impact for the company itself or the farming community. The Cocoa Barometer (a report by various NGOs on sustainability issues in cocoa) sites two major challenges in the certified cocoa production process. First, the auditing process that ensures farmers are meeting sustainability standards are often unreliable as many control visits on farms are announced beforehand. Second, there is a lack of evidence of any long-term positive impact of the certified standards on the environment and on cocoa farmers.[x] The chocolate industry has had a checkered past in terms of labor practices. Cocoa farmers are paid less than $2.50 per day even including premiums paid for sustainable cocoa.[xi] There have also been ample reports of unpaid child labor and forced labor on farms. Although the initiatives implemented have moved Hershey in the right direction toward combating climate change, should it take more stringent approaches to measure the impact of its programs on cocoa bean yield? Furthermore, given the interdependence between farmers and the company, does Hershey have a responsibility to change these programs if they do not improve farmers’ livelihood? If so, which should take priority?
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[i] Barclay, Eliza. “Why The World Might Be Running Out of Cocoa Farmers.” http://www.npr.org/sections/thesalt/2015/07/03/419243305/why-the-world-might-be-running-out-of-cocoa-farmers. Published Jul 2015, Accessed Nov 2016.
[ii] Läderach, P., Martinez-valle, A., Schroth, G., & Castro, N. (2013). Predicting the future climatic suitability for cocoa farming of the world’s leading producer countries, ghana and côte d’ivoire. Climatic Change, 119(3-4), 841-854. doi:http://dx.doi.org.ezp-prod1.hul.harvard.edu/10.1007/s10584-013-0774-8
[iii] Stecker, Tiffany. Climate Change Could Melt Chocolate Production. https://www.scientificamerican.com/article/climate-change-could-melt-chocolate-production/. Published Oct 2011, Accessed Nov 2016
[iv] Barclay, Eliza. “Why The World Might Be Running Out of Cocoa Farmers.” http://www.npr.org/sections/thesalt/2015/07/03/419243305/why-the-world-might-be-running-out-of-cocoa-farmers. Published Jul 2015, Accessed Nov 2016.
[v] Global Exchange et. Al. “Time to Raise the Bar: The Real Corporate Social Responsibility for the Hershey Company.” https://www.greenamerica.org/PDF/HersheyReport.pdf. Published Sep 2010, Accessed Nov 2016.
[vi] “Learn to Grow Cocoa: Sustainable Cocoa Farming.” https://www.thehersheycompany.com/en_us/responsibility/good-business/creating-goodness/learn-to-grow.html. Accessed Nov 2016.
[vii] “CocoaLink: Knowledge in the Farmer’s Pocket.” https://www.thehersheycompany.com/en_us/responsibility/good-business/creating-goodness/cocoa-sustainability/cocoa-link.html. Accessed Nov 2016.
[viii] “CocoaAction.” https://www.thehersheycompany.com/en_us/responsibility/good-business/creating-goodness/cocoa-action.html. Accessed Nov 2016.
[ix] Taylor, Kate. “The Smart Reason the World’s Largest Candy Maker is Hiring Meteorologists.” http://www.businessinsider.com/mars-chocolate-hires-meteorologists-to-deal-with-climate-change-2016-9. Published Sep 2016, Accessed Nov 2016.
[x] “Cocoa Barometer 2015.” http://www.cocoabarometer.org/Download_files/Cocoa%20Barometer%202015%20Print%20Friendly%20Version.pdf. Accessed Nov 2016.
[xi] Gunther, Marc. “Hershey’s Uses More Certified Sustainable Cocoa, but Farmers May not be Seeing the Benefits.” https://www.theguardian.com/sustainable-business/2015/jul/06/hersheys-mars-ferrero-cocoa-farming-fair-trade-global-exchange. Published Jul 2015, Accessed Nov 2016.